Underpricing in Corporate Bond Issues: An Explanation Based on Information Problems

Sammanfattning: This paper represents the first of its kind on the Swedish market as well as the first on the European market in over two decades. Through analysis of 1-day excess return observations for 457 bond issues on the Swedish corporate bond market ranging from June 2003 to February 2015, we investigate how information problems relate to underpricing. Our empirical evidence indicates that Swedish corporate bond issues are on average underpriced and that this underpricing is strongly related to the issuer status, where first-time issuers and, in particular, first-time issuers who are private underprice the most. While we find no evidence in support of the winner's curse theory and the asymmetric information theory, we do find that underpricing relates to the information acquisition theory and is used to extract information from investors. Awareness of the underpricing drivers and pattern has several implications and may assist stakeholders involved in price setting and assessment of corporate bond issues.